Flawed use of stock options model leads to financial reporting errors.
Employee stock options are often mispriced due to flaws in the Black–Scholes model, leading to errors in financial reporting. The main issues stem from differences in how the model is set up compared to actual contract terms, as well as changes made by regulators. These errors can be quantified, particularly in the "risk-free rate" input. The study aims to shed light on these discrepancies and their impact on financial measurements.